Microsoft has clearly worked hard to make Office 365 an easier way to run a full network for small and medium-sized businesses. The new edition is easier to set up, easier to administer, easier to use, and more flexible. It's friendlier to mobile devices, though there's still plenty of room for improvement. And it's all around more capable, drawing on nice additions in Exchange 2013, SharePoint 2013, and Lync 2013, as well as better integration across the servers.

The ability to switch on mail, file sharing, Web/intranet, messaging, and live meetings without standing up servers and SANs will be enticing to companies eager to save time and money. But companies who think implementing Office 365 will eliminate the need for IT staff (and IT pros who think it will mean more hours in the day for World of Warcraft) are going to be disappointed. Exchange, SharePoint, and Lync may be running in Microsoft's cloud, but they still require attention from knowledgeable hands.

A number of Office 365 plans are available, and Microsoft adds two more to the mix: the Small Business Premium and the Midsize Business. These plans come with the Microsoft Office 2013 suite (click for InfoWorld's review) on a subscription basis, including the ability for each user to install the software on five devices (PCs or Macs). Should you need to edit a document on some other device, such as an iPad, you can do so with Office Web Apps, which support all the latest browsers and are good enough for light work. Even better, if you can borrow someone else's PC, you can stream the Office 2013 applications from the cloud for temporary use.

Features, er, servicesNote that users get the same features using the streaming Office apps or the on-premises installations. New features to highlight include the People feature (basically a beefed-up contact database) and the Newsfeed that lets users combine all their online resources, such as websites they like, blogs they read, RSS feeds, and status updates from other users. A new Sites feature combines all of a user's individual and team SharePoint sites. Finally there's SkyDrive, which allots varying amounts of online storage for each user depending on how much you want to pay, with geo-redundant backup thrown in for free. Users also have one-click access to the Office Store, for new Office-certified apps (think add-ons). Of course admins can control access to this.

Companies also get SharePoint Online, which includes custom design for basic Web presence and team sites along with new social features courtesy of the Yammer acquisition. Then there's Exchange Online, covering 25GB per user, Active Directory sync, and a surprising number of security and compliance features, including data loss prevention filters and vastly improved e-discovery capabilities. Finally, Lync Online provides presence management, voice and HD videoconferencing, live document sharing, and the ability to sync Lync with certain VoIP phones. Basically, the online servers deliver all the features you're most likely using from your on-premises servers, but in a simpler format at the cost of $12.50 or $15 per user per month.

For companies that would prefer to step into the cloud rather than leap, Office 365 does a good job of bridging the gap between on-premises and cloud deployments. IT admins can run any app or server either in the cloud or on-premises with users none the wiser (probably). If your users are critically dependent on only Word or Excel, for example, you could install those locally while sharing files with SharePoint Online, running Exchange locally or in a hybrid deployment (with one console to manage both), and using Outlook on the Web -- whatever works for the company.

Second, you don't have to upgrade to Office 2013 from Office 2010 in one fell swoop. You can run those apps side by side and upgrade for good when users are ready. At least, that's how it's supposed to work. When we tried running Office 2010 and Office 2013 on the same system, PowerPoint 2010 refused to open files after PowerPoint 2013 was installed. The rest of the apps worked fine, but we've heard of similar problems plaguing other Office applications. Microsoft has fix-it documentation for this, but the workaround didn't work for us.

IT admins logging into Office 365 will first see the admin center. This is the IT management hub where you can access all your day-to-day tools, health monitoring, and reporting.

Easy administration (for real admins)For the most part, Office 365 admins will live in a single administration portal, which combines all the management tools you need for the Exchange, SharePoint, and Lync servers, as well as all the basic user-oriented tools. You configure users, mailboxes, site settings, downloads, and more from a single, Web-based GUI. Plus, you can monitor service health and maintenance activities with an easy-to-read dashboard and customizable reports.

Log in to the admin portal and you get a navigation bar across the top that carries links to every management service available and a side column with other IT resources. Setup is where IT folks may get extra Warcraft time, especially if you follow the basic setup option, which is what most small businesses will use. (There's a custom installation process for midsize companies with more sophisticated arrangements.) For the more basic needs, Microsoft has done a good job of simplifying all the steps -- everything from setting up a domain, mailboxes with DNS, and user access to files and apps -- to take you from home-based to cloud-based. The plentiful online help includes a community tab with a search feature that takes you directly to TechNet articles or community comments addressing your issue.

We won't walk through every setup step in this review, but one example is transferring or creating your domain. First you name it, either a new one or your existing domain; this includes a one-step process for domain registry services to transfer your domain records to Office 365 if your service is on the list. If it's not, there's a step-by-step guide for other services.

Although a custom setup procedure is available, most businesses will default to the basic setup option (above). This is an easy, step-by-step guide to configuring Office 365 and syncing it back to your current network. Basic setup will even walk you through domain registration or migration (below).

All told, initial setup was a fairly quick process for us, followed by screens for entering individual user info for both the contact database and access control. You can add users in bulk by downloading a CSV template from the admin portal, though you'll still need to populate that file yourself before uploading. Some of the steps were still manual for us, like transferring MX records, but Microsoft promises step-by-step versions in the final.

Thanks to the new additions in Exchange Online, Office 365 now integrates most of your email security needs. You get a series of check boxes that allow for custom spam filters, including both spam and malware policies with quarantine. You can mark message types you consider to be spam and set up automatic response actions if Exchange Online detects one of those email types. You also get the ability to manage mobile devices through Exchange ActiveSync policies (to ensure on-device encryption, strong passwords, and so on) and remotely wipe devices that are lost or stolen. It's an easier interface, but with fairly sophisticated features.

The Office 365 admin center has full system health monitoring for all your Office 365 services, which are tracked over time. Just click to drill down to individual processes, or to view history for the past 30 days.

Service Health is another feature that will be big for IT admins. Service Health provides an at-a-glance view of Office 365 service performance over time with drill-down for each service. There's a log of recent and upcoming updates, as well as a solid reporting engine, including visual graphics. From these screens you can view and manage all back-end Office 365 resources, among them mail, voice and conferencing, SharePoint sites, and user privileges.

Office 365 brings to mind the old Small Business Server that looks like it's designed for non-IT folks to set up and manage, but requires an IT staff or an IT consultant for most scenarios. The steps are simpler, but most of the work is still there. Syncing Active Directory, transferring an MX record, interpreting health reporting -- it's all easier, but nontechnical users won't even know what they're looking at. Getting Exchange, SharePoint, and Lync from the cloud will certainly save on hardware costs, but staffing needs will remain much the same for both the smaller shops and the bigger shops with more complex requirements.

Still, when you weigh functionality against cost, Office 365 would be a big step forward for many businesses. It's definitely worth a close look.